Noob Questions

Discussion in 'Options' started by gilch, Mar 24, 2008.

  1. gilch


    buying calls has been my only option trading experience ... while i understand the basics of writing, there are 2 noob questions someone might help me with

    1. Covered Call Writing - how often do the calls get exercised when common is above the SP? My concern is with a somewhat volatile stock... ex. own common at 10/per
    ..write calls at 13 strike because i know i would book that profit anyway if it ran 30% . Stock runs to 11-12 ish and gets bad news or some other event would take place that would make me want to sell and just book the profit ... after selling the common, lets say it runs to 15... option exercised, im still liable to sell at 13 correct?

    2. Put Writing .. just general thoughts for me to consider

  2. Options usually are not exercised until within a few day of expiration or on the last day of trading and then only if the option is ITM enough to cover any commissions associated with someone exercising and making a profit. You really need to learn to analyze what happens as the stock price moves.

    In this case 1 of three things will be true on expiration:

    The stock will be over $13 in which case you make $3 per share ($13-$10) + the premium you wrote the option for.

    The stock will be below $10 in which case you keep the premium you wrote the option for but are now in a losing stock trade and can either hold and hope it comes back up or sell it for a loss (hopefully the loss is small enough to be made up by the premium you made). If the stock drops significantly your loss could be heavy.

    The stock is trading between $10 and $13 so you keep the premium and can either sell the stock for a small profit OR write another covered call on it.